Penny stocks and microcaps (the stocks most commonly characterized by low volume) can be rewarding if you buy them at the right time and make big profits. But they also can bankrupt you with their volatility.

The nature of these small stocks means a little buying pressure goes a long way, and simply placing a buy or sell order can cause these companies to soar or crash. That means they can move big on news — or move big on no news at all, which makes them prime targets for pump-and-dump artists trying to drive up the price through unscrupulous tactics.

I highly recommend never buying a stock with a volume of less than 100,000 shares daily or a market cap of under $500 million. There are exceptions, of course, but this is a good rule of thumb to avoid this ugly part of town and steer clear of pickpockets.

If you must trade low-volume stocks, always use a limit order to protect your entry price and sell price. And if you are buying a significant amount, consider distributing your transaction over a few days or weeks instead of moving the market with one big order.